Uber is an online livery service that matches up people who need to get someplace with someone who is willing to take them there. If that sounds like a cross between a taxi and a limousine service, it is. If you have the Uber app on your smart phone, you can see which Uber drivers are near your location. Every one of those drivers will have a profile you can view before engaging them.
If a driver has a dirty car or smokes foul smelling cigars, you will know that and can pass over him for the next guy. By the same token, if you have an online reputation for being a surly customer, the driver can ignore your request and wait for a more suitable passenger. The technology cuts both ways.
No money changes hands with Uber. You pay Uber online and they pay the driver electronically, after deducting their service fee. Uber drivers reportedly can earn as much as $40 an hour, compared to the pittance most taxi companies pay their help. Uber has been extremely successful in metropolitan areas around the world – so much so that taxi drivers and owners have staged angry protests in several cities.
And now, Uber is cutting its prices 20% in the New York metropolitan area. Why? CEO Travis Kalanick told the New York Times,
The whole point of price cuts is to get UberX pricing below the cost of owning a car. Let’s say you take three or four trips a day on average. If we can get the price of UberX low enough, we can get to where it’s cheaper to take Uber than to own a car. There’s a ton of really great outcomes that happen in cities when every fully utilized Uber car takes 20 cars off the road. Parking, congestion, these things really benefit from this. Riders benefit, drivers benefit. You’re creating more jobs in the city, which is good. Riders are getting better value for their dollar.
The Uber model probably won’t work in Montana or West Texas, but in crowded urban areas like New York, Boston and Los Angeles, anything that lets you avoid the hassle of owning and driving your own car makes a lot of sense.
The industry is watching all this closely. Bill Ford, executive chairman of Ford Motor Company recently commented that services like Uber and its competitors, Lyft and ZipCar, will probably effect the market for new cars and shape how people think about car ownership in the future. For now, the Uber price cut is designed to get even more drivers and more passengers involved with the company. If the strategy works, the lower prices will likely become permanent.